This article first appeared in Capital, The Edge Malaysia Weekly on September 2, 2024 - September 8, 2024

BURSA Malaysia is expected to be enlivened this week by the listing of oil and gas services provider Steel Hawk Bhd (KL:SKHAWK) on the ACE Market on Thursday.

Steel Hawk’s initial public offering has been oversubscribed by 276.83 times. The company will have a market capitalisation of RM73.5 million based on its IPO price of 15 sen apiece, a 36% premium over its current trading price of 11 sen on the LEAP Market.

Steel Hawk’s listing, which will be the bourse’s first transition from the LEAP Market to the ACE Market under the LEAP Market Transfer Framework, is expected to raise up to RM13.5 million. The IPO will see 90 million new shares issued, of which 24.5 million were allocated to the Malaysian public.

Steel Hawk shareholders include the company’s deputy chairman and executive director Datuk Sharman K Michael, as well as Radiant Capital Sdn Bhd — held by Steel Hawk CEO Salimi Khairuddin and chief operating officer Khairul Nazri Kamarudin. Salimi and Khairul Nazri have 61% and 39% equity interest respectively in Radiant Capital. As at March 8, 2024, Sharman held 32.1% of Steel Hawk while Radiant Capital had the lion’s share at 45.9%.

As the company had already exhausted the RM3.2 million raised in its LEAP Market listing in October 2021, more than 51% of the proceeds raised on Monday will be allocated to constructing its own fabrication yard at the proposed Teluk Kalung Facility 2 in Terengganu. The intention is to expand its fabrication capacity by five times to about 65 tonnes per month from 13 tonnes per month currently in the proposed fabrication yard on land close to its existing Kalung facility.

Malacca Securities, in an Aug 21 report, projected Steel Hawk’s revenue to grow by 8.3% to 9.6% to reach RM78.6 million to RM94.4 million for the financial year ending Dec 31, 2024 (FY2024), with core net profit expected to increase by at least 6.4% to RM11.9 million, supported by the overall expansion plans coupled with projected growth in Petroliam Nasional Bhd’s (Petronas) domestic capital expenditure.

Where Steel Hawk’s valuation is concerned, the research house estimates a fair value (FV) of 39 sen, representing 160% upside to the IPO price of 15 sen per share.

“The FV is derived by pegging a price-earnings ratio of 15 times to the FY2025 forecast earnings per share of 2.59 sen, which we believe is justified with the average PER ratio of 15.9 times the Bloomberg GICS Industry’s Energy Equipment and Services sector,” Malacca Securities said.

“The outlook for the oil and gas (O&G) industry looks robust and we are bidding rigorously for jobs. As an opex (operating expenditure) contractor, things are looking good for us. Petroliam Nasional Bhd’s spending is high [and we expect to benefit from] the high number of maintenance jobs. We are bidding for 24 to 25 mid- to long-term projects, with results set to be released around the year end so we will know our prospects for the next few years by then,” Sharman tells The Edge.

Steel Hawk was incorporated in December 2020 as a private limited company to provide onshore and offshore support services for the oil and gas industry. Its three core business segments provide engineering, procurement, construction and commissioning (EPCC) services for chemical injection skids and facilities improvement and maintenance of topside O&G facilities; installation and maintenance of oilfield equipment; and supply of oilfield equipment.

Steel Hawk’s other plans include expanding its EPCC services to the renewable energy industry to serve customers in the solar and hydroelectric energy fields, from just O&G currently. Its focus will be on these two subsegments to tap rising demand for the installation and maintenance of solar panels and systems, power cables, poles, power stations and grid interconnection facilities.

Meanwhile, Steel Hawk foresees that its EPCC services and solutions will also be required during the commissioning and installation of equipment such as turbines and penstocks, as well as future installation of machinery and maintenance works.

Steel Hawk also intends to venture into integrated hook-up and commissioning (HUC) services within the O&G industry. HUC refers to the final phase of a project when facilities such as platforms, pipelines and associated infrastructure are brought together, interconnected and made operational to prepare for the start-up of an asset for O&G production.

According to the company’s prospectus, Steel Hawk is dependent on Petronas as the group contributed 85.84%, 54.47%, 45.64% and 61.39% to its total revenue for FY2020 to FY2023 and the financial period ended March 31, 2024, respectively.

UOB Kay Hian Securities is the principal adviser, sponsor, underwriter and placement agent for this IPO.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.